Tag Archives: Category Creation

Fighting Envelopment Strategies: What To Do When A Larger Company Tries to Absorb Your Category

Posted on January 1, 2023 | Leave a comment

If you live in the country and see someone out walking a smaller dog, once in a while it will be dressed like this:

Does your startup need a coyote vest?

That’s called a coyote vest and it’s pet body armor designed to prevent Bruiser from being taken by a coyote and/or hawk.  I think about coyote vests whenever I think about larger vendors running envelopment strategies against smaller vendors.

A Review of Envelopment Strategies
Envelopment strategies are common, and often winning, strategies in enterprise software.  Two classic examples from the days of yore:

I’ve written before about envelopment strategies, then using SuccessFactors and Marketo as examples.  I’ve executed envelopment strategies, too.  At BusinessObjects, we pioneered the category for query & reporting (Q&R) tools, and then ran an envelopment strategy that broadened and transformed our category into business intelligence suites.  We did that by building OLAP into our Q&R tool, and then spending $1B to acquire Crystal Decisions in enterprise reporting.

More recent examples include:

  • Qualtrics, who evolved from a product-centric survey software positioning to a solutions-centric experience management (XM) positioning, and defined a new category the Play Bigger way in the process [3].
  • Alation, who pioneered the data catalog as an application for data search & discovery and then transformed it into an overall data intelligence platform for data search & discovery, data governance, cloud data migration, and data privacy.

Alation transformed the data catalog from its original search & discovery use-case to a broader, data intelligence platform.

In short, envelopment strategies work — to the point where they’re basically the standard play in enterprise software:  pioneer a category, win it [4], up-level it by defining a broader problem, define what’s in and what’s out when it comes to solving that broader problem [5], and then deliver against that definition.

But that’s just our warm-up for today, where our question is not whether envelopment strategies are effective (answer, yes) but instead:  what should I do when a competitor is trying to envelop me?

Combatting Envelopment Strategies
Deciding your response to an envelopment strategy requires you to determine where your category fits into the larger vendor’s broader vision.

The key question:  is your space one of the top three (or so) strategic components in the larger vendor’s broader vision?  If it is, you face a very different situation from when it is not.

For example, back in the early days of CRM, sales, marketing, and customer service were all defined as in the space.  But professional services was out.

The original definition of CRM left room beyond sales, marketing, and service (as well as plenty of room within each)

When your company is not within one of those strategic components, life is fairly easy.  You will likely be able to partner with the larger vendor because while vision overlap may exist, reality overlap does not — and the sales force knows that.  For example, early CRM vendors did not offer a professional services automation (PSA) tool and their sellers were typically happy to connect customers to a good PSA offered by a friendly partner.

While such partnerships sow the seeds of downstream conflict because the larger vendor usually expands its scope over time, that is a high-class problem.  You can build a substantial company in the period between the larger vendor’s first entry and when they eventually get their act together.  That often takes multiple, failed, organic attempts — executed across years — followed by a change in course and a major acquistion.  Oracle failed repeatedly at in-house-developed applications for about 15 years before eventually changing course to acquire PeopleSoft, Siebel, and others.  Salesforce eyed Yammer around 2010, then built Chatter to an only modest reception, and about 10 years later acquired Slack to provide best-of-breed collaboration.

But it’s not usually as simple as in or out.  Because these boxes tend to be quite broad, there is usually room for specialization.  For example, for many years customer service largely meant case management to Salesforce — omitting B2C customer service (e.g., high-volume case deflection portals) or field service (e.g., rolling trucks).  ServiceMax, RightNow, and Click all partnered succesfully with Salesforce in these areas before Oracle acquired RightNow (early in the game) and Salesforce later acquired Click after nearly a decade of partnership.

Consider some popular specialty areas with sales today, including revenue management (e.g., Clari, BoostUp), conversation intelligence (e.g., Gong, Jiminny) and sales enablement (e.g., Highspot, Seismic) [6].  And there are many more.

Sometimes, the situation is more subtle, where the issue is not room due to specialization, but room due to lack of commitment.  In these cases, the larger vendor “cares, but not that much” about a box.  The vendor may want to cover a large number of boxes, each with a different commitment level that is usually known with the organization [7], but never expressly communicated:

  • High.  We must succeed in this space.
  • Medium.  We care, but not that much.
  • Low.  We really don’t care and just want to “check the box.”

If you skim the larger vendor’s marketing, it will be difficult to discern the level of commitment associated with any given space.  But, if you spend more time, looking for rich content, deep white papers, and numerous customer reference stories, you will likely develop a sense for whether the marketing is simply veneer covering a low-commitment box as opposed to the hardwood of a core one.  Either way, the sales force will know.  Partners will know.  Most employees will know [7].

For example, Oracle had its own BI tool, Discoverer, the entire time BusinessObjects grew from zero to IPO, serving largely Oracle customers, in many cases partnering with the Oracle field [8].  In strategy circles, Oracle was executing a “weak substitutes” strategy, treating the space opportunistically, hoping to get extra revenues from indifferent customers, but understanding their offering was not fit to win in a best-of-breed evaluation.

Summary of Strategic Responses to Envelopment Strategies
With that backdrop, let’s summarize the options for how you can respond when someone tries to envelop you.

  • Sell.  The key here is timing.  If a bigger vendor approaches you early in your lifetime, you might think “too early for me.”  But, for them, it’s a clear sign that they are tracking the space and doing a make / buy / partner assessment.  If you rebuff the offer, you might get a second chance, but it will likely be years later, after they try building it themselves or acquiring another company and failing.  Remember, when selling to a strategic, it’s about them, not you [9]. Examples:  Aptrinsic selling to Gainsight, Chorus selling to Zoominfo, though later in its lifecycle.
  • Specialize.  Get so strong in your space that buying another vendor wouldn’t really solve the larger vendor’s problem, thus they decide to build or partner in the space.  If you execute well and you’re really focused, you can beat their in-house development efforts and stay a leader despite the larger vendor’s efforts.  If you also have great access to capital so you can grow fast, you can also build a substantial company while the larger vendor fumbles around.  Your strength and anticipated response can shape their “in/out” definition of the category.  Examples:  Gong, Clari, Amplitude [10].
  • Segment.  Pick a size-based, functional, or vertical segment of the market and go deep.  Think:  we’re the best CRM vendor for SMB/MM (Hubspot), we’re the best application for the customer service function (Zendesk), or we’re the best marketing personalization vendor for retailers (Bluecore).  This strategy can work very well to provide differentiation from the would-be enveloper and build a moat to protect your from their attack.  Think:  “the megavendor may be in bigger in the overall market, but nobody knows and cares about you like we do.” [10]
  • Counter.  Envelop back.  If someone tries to envelop you, well, two can play that game — and you can envelop right back.  This works best when you’re similar in size to the would-be enveloper.  Examples:  Back in the day, BusinessObjects and Cognos each tried to envelop each other.  After BusinessObjects bested Cognos in the BI suites evolution, Cognos countered by trying to unite BI suites with planning software to create enterprise performance management [11].  Today, in a similar clash, Alation and Collibra are trying to envelop each other in data intelligence platforms, the former starting from its leadership position in data catalogs and latter from its strong position in data governance.  I believe Alation has the better strategic position in that battle and that seems to be proving out in the market [12] — though I am by no means a disinterested observer [13].
  • Suffer.  Finally, you can pretend that envelopment isn’t happening around you — an all too popular strategy, that rarely results in a good outcome.  As Mark Twain said, “denial ain’t just a river in Egypt.”  Ignoring category envelopment is a fast path to becoming a question in Trivial Pursuit Enterprise Software Edition.  Example:  name the enterprise reporting vendor who, in the early 2000s, had a superior product, but nevetheless lost to Crystal?  Answer:  Actuate.  While it’s fashionable to say, perhaps over a nice glass of Michter’s 20 year in Davos, that building a company is about ignoring the competition and following your true North Star, that has nothing to do with the real world of strategy which is all about rising to strategic challenges, which often arise from competition.

A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them. — Richard Rummelt

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Notes

[1] Hence the original, and fairly long-lasting, definition of CRM as sales, marketing, and service.

[2] That Siebel would shortly thereafter miss the cloud transformation and be displaced by Salesforce is a story for another day.  Per an old friend who used to work there:  “I decided to leave Siebel the day I heard the quite powerful VP of Product say we were going to beat Salesforce by being more Siebel than we’ve ever been.”

[3] Effectively doing two transformations:  (a) from survey software to customer experiencement management, (b) from customer experience management (application) to overall experience management platform — for customer, employee, product, and brand experience management.

[4] Don’t forget this important step!  You can be too busy thinking about the next thing to remember to win the category you pioneered.

[5] The hardest part of the exercise in my opinion.  Where do you need to make, buy, or partner?  What really needs to be integrated in versus what should be connected externally and/or built upon.  This is an exercise that intersects customer centricity with core competencies.

[6] I’m happy to say I joined the board of Jiminny in 2022.

[7] Sadly, know usually means tacit knowledge within the company and its close ecosystem.  Companies seem to feel a need to communicate as if they are all-in in every space in which they play.  This damages corporate credibility, but there is no obvious alternative.  Think:  “we sell a great thing 1, 2, and 3 and a just-OK thing 4 and 5.  People figure it out anyway, but it’s hard to say in a marketing collateral or sales training.  Plus, sometimes, senior management think it’s also a great thing 4 and 5, and few are willing to tell the Emperor that they’re wearing no clothes.

[8] Knowing that a $3M data warehouse Oracle database deal might ride on the success of a demo built in a $50K BI tool, and knowing that Oracle had only a weak commitment and a meh BI product, a seller might willingly trade away the $50K of BI tool revenue to increase the odds of winning the $3M database deal.

[9] Making a product acquisition, especially a strategic one, at a larger vendor requires much more than it being a good idea.  It’s more like stars aligning.  Larger vendors often track spaces and key vendors within them for years before making an acquisition.  Triggers for actually making an acquisition could be a competitor acquisition (e.g., Oracle buying Endeca in response to HP acquiring Autonomy), the loss of a major customer, acknowledgement of failure in a new product initiative, a change in board sentiment, or a drop in a company’s stock price such that it become acquireable.  Example:  we had discussions with Acta several times, over a period of years, before eventually acquiring them at BusinessObjects.

[10] Specialize and segment are both the coyote vest strategy — get so strong in a space that it’s unenvelope-able (or at least, not worth enveloping) from the larger vendor’s POV.

[11] Via the acquistion of Adaytum.  And yes, the original definition of EPM was the unification of BI and planning.  This was an analyst-led shotgun wedding that Cognos embraced and one that never really made sense to customers.  While BusinessObjects later countered by acquiring SRC, BI and planning never really came together.  You could put them under one proverbial roof, but they never became one category.  The two categories later diverged and EPM was redefined as the unification of financial planning and consolidation software (another analyst-led shotgun wedding that also later largely fell apart).

[12]  If you want to provide a general-purpose data access platform designed to help a wide range of users find, understand, and trust data, are you better off starting from a data access point of view (POV) or a data governance one?  Methinks access, as it’s fundamentally a “play offense with data” POV whereas data governance is fundamentally a “play defense with data” POV.  I think customers want to buy the former (offense, subject to proper defense as a constraint) and it’s easier to adapt an access POV to governance than the converse. Growing up around dusty glossaries and policies isn’t a great way to get spiritually in tune with end-user needs, collaboration, access, and a data democratization POV.  IMHO.

[13] I have a long history with Alation as an angel investor, advisor, former board member, interim gig employee, and consultant.

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Playing Bigger vs. Playing To Win: How Shall We Play the Marketing Strategy Game?

Posted on August 27, 2022 | 7 comments

“I’m an CMO and it’s 2018.  Of course I’ve read Play Bigger.  Duh.  Do you think I live under a rock?” — Anonymous repeat CMO

Play Bigger hit the Sand Hill Road scene in a big way after its publication in 2016.  Like Geoffrey Moore’s Crossing the Chasm some 25 years earlier, VCs fell in love with the book, and then pushed it down to the CEOs and CMOs of their portfolio companies.  “Sell high” is the old sales rule, and the business of Silicon Valley marketing strategy books is no exception.

Why did VCs like the book?  Because it’s ultimately about value creation which is, after all, exactly what VCs do.  In extreme distillation, Play Bigger argues:

  • Category kings (companies who typically define and then own categories in the minds of buyers) are worth a whole lot more than runner-ups.
  • Therefore you should be a category king.
  • You do that not by simply creating a category (which is kind of yesterday’s obsession), but by designing a great product, a great company, and a great category all the same time.
  • So, off you go.  Do that.  See you at the next board meeting.

I find the book a tad simplistic and pop marketing-y (in the Ries & Trout sense) and more than a tad revisionist in telling stories I know first-hand which feel rather twisted to map to the narrative.  Nevertheless, much as I’ve read a bunch of Ries & Trout books, I have read Play Bigger, twice, both because it’s a good marketing book, and because it’s de rigeur in Silicon Valley.  If you’ve not read it, you should.  You’ll be more interesting at cocktail parties.

As with any marketing book, there is no shortage of metaphors.  Geoffrey Moore  had D-Day, bowling alleys, and tornados.  These guys run the whole something old, something new, something borrowed, and something blue gamut with lightning strikes (old, fka blitzkreigs), pirates (new, to me if not Steve Jobs), flywheels (borrowed, from Jim Collins), and gravity (blue, in sense of a relentless negative force as described in several cautionary tales).

While I consider Play Bigger a good book on category creation, even a modernized version of Inside the Tornado if I’m feeling generous, I must admit there’s one would-be major distinction that I just don’t get:  category creation vs. category design, the latter somehow being not just about creating and dominating a category, but “designing” it — and not just a category, but a product, category, and company simultaneously.  It strikes me as much ado about little (you need to build a company and a product to create and lead a category) and, skeptically, a seeming pretense for introducing the fashionable word, “design.”

After 30 years playing a part in creating, I mean designing, new categories — both ones that succeeded (e.g., relational database, business intelligence, cloud EPM, customer success management, data intelligence) and ones that didn’t (e.g., XML database, object database) — I firmly believe two things:

  • The best way to create a category is to go sell some software.  Early-stage startups excessively focused on category creation are trying to win the game by staring at the scoreboard.
  • The best way to be a category king is to be the most aggressive company during the growth phase of the market.  Do that by executing what I call the market leader play, the rough equivalent of Geoffrey Moore’s “just ship” during the tornado.  Second prize really is a set of steak knives.

I have some secondary beliefs on category creation as well:

  • Market forces create categories, not vendors.  Vendors are simply in the right place (or pivot to it) at the right time which gives them the opportunity to become the category king.  It’s more about exploiting opportunities than creating markets.  Much as I love GainSight, for example, I believe their key accomplishment was not creating the customer success category, but outexecuting everyone else in exploiting the opportunity created by the emergence of the VP of Customer Success role.  GainSight didn’t create the VP of Customer Success; they built the app to serve them and then aggressively dominated that market.
  • Analysts name categories, not vendors.  A lot of startups spend way too much time navel gazing about the name for their new category.  Instead of trying to sell software to solve customer problems, they sit in conference rooms wordsmithing.  Don’t do this.  Get a good-enough name to answer the question “what is it?” and then go sell some.  In the end, as a wise, old man once told me, analysts name categories, not vendors.
  • Category names don’t matter that much.  Lots of great companies were built on pretty terrible category names (e.g., ERP, HCM, EPM, BTO, NoSQL).  I have trouble even telling you what category red-hot tech companies like Hashicorp and Confluent even compete in.  Don’t obsess over the name.  Yes, a bad name can hurt you (e.g., multi-dimensional database which set off IT threat radar vs. OLAP server, which didn’t).  But it’s not really about the name.  It’s about what you sell to whom to solve which problem.  Again, think “good enough,” and then let a Gartner or IDC analyst decide the official category name later.

To hear an interesting conversation on category creation,  listen to Thomas Otter, Stephanie McReynolds, and me discuss the topic for 60 minutes.  Stephanie ran marketing at Alation, which successfully created (or should I say seized on the market-created opportunity to define and dominate) the data catalog category.  (It’s all the more interesting because that category itself is now morphing into data intelligence.)

Since we’re talking about the marketing strategy game, I want to introduce another book, less popular in Silicon Valley but one that nevertheless deserves your attention: Playing to Win.  This book was written not by Silicon Valley denizens turned consultants, but by the CEO of Proctor & Gamble and his presumably favorite strategy advisor.  It’s a very different book that comes from a very different place, but it’s right up there with Blue Ocean Strategy, Inside the Tornado, and Good Strategy, Bad Strategy on my list of top strategy books.

Why?

  • Consumer packaged goods (CPG) is the major league of marketing.   If they can differentiate rice, yogurt, or face cream, then we should be able to differentiate our significantly more complex and inherently differentiated products.  We have lots to learn from them.
  • I love the emphasis on winning.  In reality, we’re not trying to create a category.  We’re trying to win one, whether we happened to create it or not.  Strategy should inherently be about winning.  Strategy, as Roger Burgelman says, is the plan to win.  Let’s not dance around that.
  • I love the Olay story, which opens the book and alone is worth the price of the book.  Take an aging asset with the wrong product at the wrong price point in the wrong channel and, instead of just throwing it away, build something amazing from it.  I love it.  Goosebumps.
  • It’s practical and applied.  Instead of burying you in metaphors, it asks you to answer five simple questions.  No pirates, no oceans, no tornados, no thunderstorms, no gorillas, no kings, no beaches.

Those five questions:

  • What is your winning aspiration? The purpose of your enterprise, its motivating aspiration.
  • Where will you play? A playing field where you can achieve that aspiration.
  • How will you win? The way you will win on the chosen playing field.
  • What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way.
  • What management systems are required? The systems and measures that enable the capabilities and support

Much as I love metaphors, I’d bury them all in the backyard in exchange for good answers to those five questions.  Strategy is not complex, but it is hard.  You need to make clear choices, which business people generally resist.  It’s far easier to fence sit, see both sides of the issue, and keep options open (which my old friend Larry used to call the MBA credo).  That’s why most strategy isn’t.

Strategy is about answering those questions in a way that is self-consistent, consistent with the goals of the parent organization (if you’re a brand or general manager in a multi-product company), and with the core capabilities of the overall organization.

In our view, Olay succeeded because it had an integrated set of five strategic choices that fit beautifully with the choices of the corporate parent. Because the choices were well integrated and reinforced category-, sector-, and company-level choices, succeeding at the Olay brand level actually helped deliver on the strategies above it.

I won’t summarize the entire book, but just cherrypick several points from it:

  • As with Burgelman, playing to win requires you to define winning for your organization in your context.  How can we make the plan to win if we don’t agree on what winning is?  (How many startups desperately need to have the “what is winning” conversation?)
  • Playing to win vs. playing to play.  Which are you doing?  A lot of people are doing the latter.
  • Do think about competition.  Silicon Valley today is overloaded with revisionist history:  “all we ever focused on was our customers” or “we always focused only on our vision, our north star.”  Ignoring competition is the luxury of retired executives on Montana ranches.  Winning definitionally means beating the competition.  You shouldn’t be obsessed with the competition, but you can’t ignore them either.
  • While they don’t quite say it, deciding where you play is arguably even more important than deciding what you sell.  Most startups spend most of their energy on what (i.e., product), not where (i.e., segment).  “Choosing where to play is also about choosing where not to play,” which for many is a far more difficult decision.
  • The story of Impress, a great technology, a product that consumers loved, but where P&G found no way to win in the market (and ultimately created a successful joint venture with Clorox instead), should be required reading for all tech marketers.  A great product isn’t enough.  You need to find a way to win the market, too.
  • The P&G baby diapers saga sounds similar to what would have happened had Oracle backed XQuery or when IBM originally backed SQL — self-imposed disruptions that allowed competitors entry to the market.  IBM accidentally created Oracle in the process.  Oracle was too smart to repeat the mistake.  Tech strategic choices often have their consumer analogs and they’re sometimes easier to analyze in that more distant light.
  • The stories of consumer research reveal a depth of desired customer understanding that we generally lack in tech.  We need to spend more time in customers’ houses, watching them shave, before we build them a razor.  Asking them about shaving is not enough.
  • I want to hug the person who described the P&G strategy process as, “corporate theater at its best.”  Too much strategy is exactly that.

Overall, it’s a well-written, well-structured book.  Almost all of it applies directly to tech, with the exception of the brand/parent-company intersection discussions which only start to become applicable when you launch your second product, usually in the $100M to $300M ARR range.  If you don’t have time for the whole book, the do’s and don’ts at the end of each chapter work as great summaries.

To wrap this up, I’d recommend both books.  When thinking about category creation, I’d try to Play Bigger.  But I’d always, always be Playing to Win.

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Posted in Management, Marketing, SaaS, Startups, Strategy, VC

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SaaS Product Power Breakfast with Stephanie McReynolds on Category Creation

Posted on May 19, 2021 | 1 comment

Please join us for our next episode of the SaaS Product Power Breakfast at 8am Pacific on 5/20/21 as we have a discussion with former Alation CMO Stephanie McReynolds on the topic of category creation and her learnings as she helped drive the creation of the data catalog category and establish Alation as the leader in it [1].

In addition to her gig at Alation, Stephanie’s had a great career at many leading and/or category-defining vendors including E.piphany, Business Objects, PeopleSoft, Oracle, Aster Data, ClearStory, and Trifacta.

Questions we’ll address include:

  • Does a vendor create a category or do market forces?
  • In creating a category do you lead with product or solution?
  • How do you know if you should try to create a category?
  • What role do industry analysts play in category creation?
  • What happens once you’ve successfully created a category?  What next?

This should be great session on a hot topic.  See you there.  And if you can’t make it, the session will be available in podcast form.  We think of our show, like Dr. Phil, as a podcast recorded before a live (Clubhouse) studio audience.

# # #

[1] I am an angel investor in and member of the board of directors at Alation.

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Congratulations, You’ve Created a Category. Now What?

Posted on June 7, 2020 | 1 comment

(Revised 06/27/20)

I was talking to an old friend the other day who’s marketing chief at a successful infrastructure startup.  “Congratulations,” I said, “I know it was a long slog, but after about a decade of groundwork it looks like things have really kicked in.  I hear your company’s name all the time, I’m told business is doing great, and Gartner literally can’t stop talking about your technology and category.”

“Yes, we’ve successfully created a category,” he said, “But I have one question.  Now what?”

It reminded me, just for a minute, of the ending of The Candidate.

While it’s definitely a high-class problem, it’s certainly a great question and one you don’t hear very often.  These days a lot of very clever people are out dispensing advice on how to create a category — including some wise folks who first dissuade you from doing so — but nobody’s saying much about what to do once you’ve created one.  That’s the topic of this post. category2

Bad Fates That Can Befall Category Creators
Let’s start with the inverse.  Once you’ve created a category, what bad things can happen to it?

  • It can be superannuated.  Technology advances such that it’s not needed any more.  Think:  buggy whips or record cleaners [1].
  • You can lose it to someone else.  Lotus lost spreadsheets to Microsoft.  IBM lost databases to Oracle [2].  Through a more oblique attack, Siebel lost SFA to Salesforce.  Great categories attract new entrants, often big ones.
  • It can be enveloped, either as a feature by a product or as a sub-product by a suite.  Spellcheckers were enveloped as features by word processing products, which were in turn enveloped by office suites.  See the death of WordPerfect [3].

Given that we don’t want any of these things to happen to your category, what should we do about it?  I’ll answer that after a quick aside on my views on categories.

My Principles of Categories
Here are my principles of enterprise software categories:

  • Companies don’t name categories, analysts do.  Companies might influence analysts in naming a new category, but in the end analysts name categories, not vendors [6].
  • Categories sometimes converge, but not always.  Before the SaaS era, enterprise software categories almost always converged because IT was all-powerful and saw its role as entropy minimization [7].  SaaS empowered line of business buyers to end-run IT because they could simply buy an app without much IT support or approval [8].  This is turn led to category proliferation and serious “riches in the niches” where specific, detailed apps like account reconciliation have born multi-billion-dollar companies.
  • Category convergence is about buyers.  Analysts like predicting category convergence so much they get it wrong sometimes.  For example, while the analyst prediction that BI and Planning apps would converge [9] served as the face that launched 1000 ships for vendor consolidation [10], the reality was that BI was purchased by the VP of Analytics while Planning was purchased by the VP of FP&A.  You could put Brio and Hyperion under one roof via acquisition, but real consolidation never happened [11] [12].  Beware analyst-driven shotgun weddings between categories sold to different buyers.  They won’t result in lasting marriages.
  • In category definition, the buyer is inseparable from the category.  Each category is a two-sided coin that defines the buyer on one side and the software category on the other [13].  For example, when categories converge it’s either because the buyer stayed the same and decided to purchase more broadly or the buyer changed and what they wanted to buy changed along with it.  But if there is no buyer, there is no category.

What’s a Category Creator To Do?  Lead!
Having contemplated the bad things that can happen to your category and reviewed some basic principles of categories, there is one primary answer to the question:  lead.

You need to lead in three ways:

  • Grow like a weed.  Now is the time to invest in driving growth.  Nothing attracts competition like fallow land in a new category.  You created a category, you’re presumably the market share leader in the category, and now your job is to make sure you stay that way.  Now is the time to raise lots of VC and spend up to $1.70 to purchase each new dollar of ARR [13A].
  • Market your category leadership.  Tech buyers love to buy from leaders because buying from leaders is safe.  Reinforce your position as the category leader until you’re tired of hearing it.  Then do it again.  Never get bored with your own marketing.
  • Lead the evolution of your category by talking about your vision and your plan to realize it.  This makes you a safe choice because customers know you’re not resting on your laurels.  It also forces your would-be competitors to shoot at a moving target.

The vision for category evolution typically takes one of three forms:

  • Double down.  Make your thing the best thing in the market.  Stay incredibly close to your customers.  Understand and cater to their precise needs.  Your strategy is thus category defense via customer intimacy.  You simply know the buyer better.  Large companies can’t put their best people on everything, so this works when your best people are better than their average ones, they don’t put a massive investment in the space (instead preferring a good-enough solution), and the buyer cares enough to want to buy the best and can continue to do so [14].
  • Build out (i.e., lateral expansion).  Move into adjacent categories, ideally sold to your existing buyer, giving yourself economies of scale in go-to-market and your buyer the ability to buy multiple products on one platform [15].  GainSight’s move into product analytics is one example.  Another is Salesforce’s systematic move across buyers, from VP of Sales to VP of Service to VP of Marketing.  This strategy works when you can afford to build or acquire into the adjacent category and, if the category involves a different buyer, that you can afford to invest in the major transition from being a single-buyer to a multi-buyer firm [16].
  • Build up (i.e., vertical expansion) [17]. Build up from your platform to create one or more applications atop it.  An ancient example would be Oracle expanding from databases into applications [18] which was first attempted via in-house development.  Anaplan is a contemporary example.  They first launched a multidimensional planning platform, had trouble selling the raw engine in finance (a more saturated market with more mature competition), shifted to build sales planning applications atop their platform, and successfully used sales planning as their beachhead market.  Once that vertical (i.e., upward) move from platform to application was successful, they then bridged (now laterally) into finance and later into supply chain applications.

What If You Can’t Afford to Lead?
But say you can’t afford any of those strategies.  Suppose you’re not a particularly well-funded company and your market is being attacked on all sides, by startups and megavendors alike.  What if staving off those attacks is not a viable strategy.  Then what?

If you’re at risk losing leadership in your category, then your strategy needs to be segment.  Pick a segment of the market you created and lead it.  That segment could be on several dimensions.

  • Size, by focusing on SMB, mid-market, or enterprise customers only — this works when requirements (or business model) vary significantly with size.
  • Vertical, by focusing on one or two vertical industries — ideally those with idiosyncratic requirements that can serve as entry barriers to horizontal players.
  • Use-case, by focusing on a specific use-case of a platform that supports multiple use-cases.  For example, what if Ingres, instead of focusing on appdev tools after placing 4th round I of the RDBMS market, instead had focused on data warehousing, a distinct use-case and one to which the technology was well-suited?

Conclusion
If you’re reading this because you’ve created a category, congratulations.  You’ve done an incredibly difficult thing.  Hopefully, this post helps you think about your most important question going forward:  now what?

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Notes

[1] I struggle to find software examples of this because the far more common fate is envelopment, typically into a feature — e.g., spellchecker.  I suspect it happens more in hardware as the underlying components get smarter, they eliminate the need for higher-level controllers and caches.

[2] Despite both inventing the relational database and being the leader in the prior-generation database market with IMS.

[3] The precise cause of death is still debated and a final lawsuit concluded less than a decade ago.

[4] Software industry evolution led to the SaaS model, which then put huge importance on renewals which in turn led to the creation of the VP of Customer Success role which created both the demand for and buyer of Customer Success software.

[5] And either way, a great company.  (I know both the founder and the CEO, so see my disclaimer.  I can say I’ve also been a customer and a happy one.)

[6] I credit Arnold Silverman with pointing this out to me so clearly.

[7] To reduce the degree of disorder in a company’s software stack, IT had a strong tendency to prefer one-stop-shop value propositions over best-of-breed.  Ergo, vendors incented by economies of scale in go-to-market, were naturally aligned with buyers who wanted to buy more from fewer vendors.  Both forces pushed towards developing suites, either in-house or through acquisition.

[8] As I did in the early 2000s when I was CMO of a $1B company and the CIO said I needed to wait 4 years for lead management in Europe during our CRM deployment.  “That’s funny,” I thought, “we have leads today and if I wait 4 years for lead management, I can assure you of only two things:  I won’t be CMO anymore and the CIO will be the only person coming to my going-away party.”  That’s when I bought Salesforce.

[9] That was the initial use of the category name enterprise performance management (EPM), which later evolved before eventually, and only of late, being retired.  A key point here is that while these categories organ-rejected each other, that took place literally over the course of decades.  Thus, paradoxically, you likely would have been “dead right” as a BI vendor if you rejected the inclusion of financial planning in 2003 .

[10] Cognos acquiring Adaytum, Business Objects acquiring SRC and Cartesys, and Hyperion acquiring Brio, among others.

[11] Meaning you could ask someone who worked in the organization “which side” they worked on, and they would answer without hesitation.  You can’t sell financial planning systems without significant domain expertise that the BI side lacked, and that was more about DNA than training.  (For example, most EPM sales consultants had years of experience working in corporate finance departments before changing careers.)  It was more conglomeration than consolidation.

[12] Amazingly, this pattern repeated itself within EPM in the past decade.  EPM  was redefined as the convergence of financial planning with financial consolidation, both within the finance department, but again sold to different buyers.  Planning is sold to the VP of FP&A, Consolidation to the Corporate Controller.  While both report to the CFO, they are two different roles, typically staffed with two very different people.  Again, the shotgun wedding ended in divorce.

[13] Each category has one primary buyer.  A given buyer may buy in several different categories.  As a marketer, the former statement is 10x more important than the latter.

[13A] See my post on the CAC ratio.  Data source, the KeyBanc 2019 SaaS survey, shows median of $1.14 with mid 50-percentile range of $0.77 to $1.71.

[14] The tension here is between letting, e.g., the VP FP&A purchase their own best-of-breed Planning product versus a good-enough Planning module subsumed into a broader ERP suite decided upon by the CFO.  This is a real example because Planning exists on both sides today; there remain several successful SaaS planning vendors selling best-of-breed outside the context of a financial suite while most ERP vendors bundle good-enough Planning into their suite.

[15] When accomplished via M&A, the single-platform benefits are typically limited to pre-defined integration but can hopefully over time — sometimes a long time (think Oracle Fusion) — become realized.

[16] Typically this means creating product-line general managers along with specialized overlay sales and sales consultants, product management, product marketing, and consulting teams.  It also means the more difficult task of going to market with products at differing levels of maturity, something very hard to master in my experience.  Finally, in apps at least, the more you are multi-buyer, the more IT needs to get involved, and the firm must master not only the art of the sale to the various business buyers, but to IT as well.  Salesforce has done this masterfully.

[17] Vertical in the sense of up, i.e., atop your platform; not vertical in the sense of focusing on vertical markets.

[18] Which, for ancient software historians, was the failed strategy that Oracle gave a mighty try before giving up and acquiring PeopleSoft in 2005, the first in a long series of applications acquisitions.

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